Executive Summary / Key Takeaways

• C21 Investments Inc. ($CXXIF) operates as a vertically integrated cannabis company in the United States, distinguishing itself through a comprehensive model encompassing cultivation, processing, distribution, and retail, complemented by unique payroll and benefits services for the cannabis sector.
• Despite a challenging market with industry-wide price compression and declining state sales in Nevada, CXXIF demonstrated resilience with 30% year-over-year revenue growth in Q1 2025, driven by strong retail strategy and same-store sales increases.
• The company's operational efficiency, marked by improved gross margins and reduced selling, general, and administrative (SG&A) costs, has contributed to positive income from operations and sustained free cash flow, underscoring a disciplined approach to profitability.
• Strategic corporate actions, including a recent share structure amendment to maintain "foreign private issuer" status and a litigation settlement, aim to streamline compliance and stabilize financial obligations, positioning the company for focused growth.
• Key risks include the impact of Section 280E taxation on profitability and broader regulatory uncertainties in the U.S. cannabis market, which could significantly influence future financial performance.

The Integrated Advantage: C21 Investments' Strategic Foundation

C21 Investments Inc. ($CXXIF) has carved out a distinct position within the fragmented and evolving U.S. cannabis industry. As a vertically integrated operator, the company controls its supply chain from cultivation and processing to distribution and direct-to-consumer retail. This comprehensive model allows CXXIF to offer a diverse portfolio of cannabis and hemp-derived products, including vaporizer pens, extracts, bulk and packaged flowers, edibles, pre-rolls, tinctures, and topicals. Beyond product sales, CXXIF differentiates itself by providing specialized payroll and benefits services to the cannabis sector, a unique offering that enhances its value proposition and deepens its engagement within the industry.

The company's journey into the cannabis market began in 2019, marking a significant pivot from its origins as Curlew Lake Resources Inc., incorporated in 1987. This strategic transformation saw CXXIF rapidly establish its integrated operations, particularly in Nevada, where it owns Silver State Relief and Silver State Cultivation. This focus on key markets, coupled with its legacy Oregon brands like Phantom Farms, Hood Oil, and Eco Firma Farms, underpins its strategy of "value creation through the disciplined acquisition and integration of core retail, manufacturing, and distribution assets in strategic markets."

The broader cannabis industry faces significant headwinds, including regulatory complexities, state-by-state variations, and the onerous Section 280E of the U.S. tax code, which disallows normal business deductions for cannabis companies, severely impacting profitability. Despite these challenges, CXXIF's integrated operational model serves as its primary differentiator, fostering efficiency and control over product quality and distribution. This approach, while not a "technology" in the traditional sense, functions as a strategic technological advantage, allowing for streamlined processes and potentially better cost management compared to less integrated peers. The ability to manage cultivation, processing, and retail under one umbrella can lead to more consistent product availability and quality, enhancing customer loyalty and potentially improving gross margins by reducing reliance on external suppliers.

Operational Excellence and Financial Resilience

C21 Investments has demonstrated notable operational resilience in a demanding market. For the first quarter of 2025, the company reported revenue of $8.6 million, representing a robust 30% year-over-year increase, even as overall Nevada state sales declined by 14% during the comparative period. This growth was not only strong annually but also showed a 6% sequential increase from the previous quarter, driven by consistent same-store sales growth across its three Silver State dispensaries and higher wholesale volumes. The South Reno dispensary, for instance, achieved over 100% same-store sales growth in its first full year of operations, while the flagship Sparks store saw a 5% increase in customer transactions quarter-over-quarter.

This revenue expansion translated into improved profitability metrics. Gross Margin for Q1 2025 stood at 35%, an increase of 410 basis points year-over-year, though it experienced a sequential dip due to seasonal discounting around the 4/20 period and increased wholesale activity. Income from Operations for Q1 2025 reached $0.2 million, a significant improvement of $1 million from the prior year's first quarter, primarily attributable to higher retail sales and a disciplined management of selling, general, and administrative (SG&A) costs, which were down 3% year-over-year.

Looking at the trailing twelve months (TTM) ended March 31, 2025, CXXIF reported annual revenue of $30.12 million. While the company recorded a net loss of $3.97 million for the TTM period, its operating cash flow remained positive at $1.19 million, indicating its core operations are generating cash. The TTM Gross Profit Margin was 41.70%, and the EBITDA Margin was 11.16%, reflecting the company's efforts to maintain efficiency despite market pressures.

In terms of capital structure and liquidity, CXXIF has undertaken strategic initiatives. On September 8, 2025, the company completed a transaction to amend its share structure, creating and issuing 100,000,000 subordinate voting shares to its CFO for a nominal consideration. This move was designed to ensure CXXIF maintains its "foreign private issuer" status in the United States, thereby reducing compliance costs and streamlining its regulatory obligations. Furthermore, a settlement agreement reached on September 4, 2025, regarding litigation involving its subsidiary Eco Firma Farms, for a total cash payment of US$2.4 million, is expected to stabilize its financial position by offsetting existing accruals and allowing the company to focus on its core business. The company also actively manages its capital through a Normal Course Issuer Bid (NCIB), having purchased 184,500 common shares for cancellation in Q1 2025.

Competitive Landscape and Strategic Positioning

C21 Investments operates in a highly competitive cannabis market, contending with both larger, more diversified players and numerous smaller, localized operators. Direct competitors include companies like Canopy Growth Corporation (CGC), Aurora Cannabis Inc. (ACB), Tilray Brands Inc. (TLRY), and Cronos Group Inc. (CRON), which often possess broader international footprints, greater access to capital, and more extensive R&D capabilities.

Compared to these larger rivals, CXXIF's market share is smaller, positioning it as a mid-tier player with a focused U.S. strategy. Its integrated business model, which combines cultivation, processing, distribution, and unique payroll services, provides a competitive moat. This integration offers tangible benefits such as enhanced customer loyalty, potentially leading to recurring revenue streams and improved operational efficiency. For instance, its bundled service offerings can provide a more holistic value proposition that larger, product-focused competitors like Canopy Growth or Aurora Cannabis may lack, potentially improving CXXIF's market share in commercial segments and enhancing gross margins through loyal customers.

While CXXIF's operational adaptability and localized execution in the U.S. are strengths, it faces vulnerabilities due to its smaller scale, which can lead to higher per-unit costs compared to larger competitors. This scale difference can also impact its ability to invest heavily in innovation and product diversification, areas where companies like Tilray, with its focus on beverages and wellness, or Cronos, with its strategic partnerships, may have an edge.

Financially, CXXIF's TTM Gross Profit Margin of 41.70% and EBITDA Margin of 11.16% reflect a solid operational foundation. However, direct quantitative comparisons with all competitors are challenging due to varying reporting standards and market focuses. For instance, Cronos Group (CRON) reported a P/E ratio of 55.03, while Aurora Cannabis (ACB) and Tilray (TLRY) had negative P/E ratios, indicating profitability challenges across the industry. CXXIF's P/E ratio of -9.10 also highlights its current net losses. CXXIF's Debt/Equity ratio of 0.46 suggests a manageable debt load relative to its equity, which is a positive in a capital-intensive industry.

The company's strategic response to competitive forces involves leveraging its integrated model for efficiency and focusing on strong retail execution in its core markets. This approach aims to counter the broader reach of larger players by excelling in localized market penetration and customer experience.

Outlook, Guidance, and Key Risks

C21 Investments remains committed to its long-term goal of sustainable growth. The company anticipates releasing its second-quarter financial results for the period ended September 30, 2024, on November 15, 2024. These results are expected to include the first full quarter of operations for its newest Silver State Relief dispensary in South Reno, which has already demonstrated strong sales growth, from $273,000 in July to $417,000 in September. This indicates continued momentum from its retail expansion strategy.

However, the investment thesis for CXXIF is not without significant risks. The U.S. cannabis market continues to be characterized by regulatory uncertainty at the federal level. The impact of Section 280E remains a substantial drag on profitability, forcing cannabis companies to pay taxes on gross profit rather than net income. Management has explicitly stated that a repeal or rescheduling of cannabis would be "tremendously beneficial" for companies like CXXIF, as it generates earnings before tax every quarter. This tax burden significantly inflates the effective tax rate and directly impacts net income and cash flow.

Furthermore, the industry faces ongoing price compression and intense competition, which can pressure margins. While CXXIF has demonstrated an ability to grow revenue and improve operational efficiency in this environment, sustained market challenges could hinder future profitability. Any adverse changes in state-level regulations or increased competition in its key markets could also impact its growth trajectory.

Conclusion

C21 Investments Inc. presents a compelling narrative of resilience and strategic focus within the dynamic U.S. cannabis industry. Its vertically integrated business model, encompassing cultivation, processing, distribution, and retail, coupled with its unique payroll services, provides a foundational competitive advantage. This integrated approach, while not a traditional technological moat, enables operational efficiency and localized market strength, as evidenced by its robust Q1 2025 revenue growth and improved gross margins despite broader market headwinds.

The company's disciplined financial management, including proactive steps to maintain its foreign private issuer status and resolve litigation, underscores a commitment to long-term stability. While CXXIF operates in a challenging environment marked by regulatory complexities and the significant burden of Section 280E taxation, its strategic emphasis on retail execution and operational control positions it for continued growth in its core markets. For discerning investors, CXXIF represents an opportunity to participate in a company that is demonstrating an ability to cultivate success through strategic integration and operational excellence, even as it awaits a more favorable regulatory landscape.